Standard Chartered Leads Credit Swap Surge for U.K. Banks

  • Stock trades below price of $5.1 billion right offering
  • Bank's shares at lowest in more than 17 years in London

As fears grow over the stability of the European banking system, Standard Chartered Plc is being hit by a double whammy in credit markets with investors increasingly worried about the U.K.-based lender’s business in Asia, where it earns most of its revenue.

The cost of protecting the company’s junior debt from default for five years using credit-default swaps almost doubled this year, rising to 479 basis points, the highest since April 2009, from 250 basis points, according to data compiled by Bloomberg. Subordinated bonds are among the riskiest part of a bank’s capital structure.

Banks are the worst performing industry group in Europe this year after revealing billions of euros of extra restructuring and litigation fees and poor trading revenue at investment-banking divisions against a backdrop of slowing global growth. Lenders on the Stoxx Europe 600 Index have dropped about 27 percent this year, with the biggest banks on the U.K.’s FTSE 350 index losing 22 percent.

The credit-swap surge and share slump increases the pressure on Standard Chartered Chief Executive Officer Bill Winters, 54, to turn around a bank reeling from losses tied to bad loans after commodity prices slumped and economies from China to India cooled. Though based in London, the bank makes almost all of its profit in Asia.

The stock has lost 28 percent to 403.3 pence this year and trades at its lowest since October 1998. It’s also below the 465 pence price of the bank’s $5.1 billion rights issue on Nov. 3. The company is scheduled to report full year earnings on Feb. 23.

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